Are bank days numbered?

Bob Pritchard talks about the future of Banks

A surge in new methods and avenues to circumvent conventional bank finance, from cryptocurrencies and blockchain to crowdfunding, presents the next major challenge for regulators in Washington, according to Business Insider.

President Trump vows to roll back financial regulations aimed at preventing another financial crisis, in particular post-crisis legislation known as Dodd-Frank, despite these rules making big banks safer by forcing them to fund their operations with more equity capital relative to their debt. But this may be the wrong focus.

The new issue now for the next 10 years is going to be fintech, and how fintech is going to affect financial intermediation in the US. And if you go out to Silicon Valley, all the discussion is all about how can we strip the profits from the big firms.

The challenge is that regulatory bureaucracies in Washington, including the Federal Reserve itself, may be too slow to react to new technologies, in the same way that policymakers missed the risks embedded in the so-called “innovations” in mortgage finance that ultimately fuelled the worst housing bust and financial crisis in modern history.

Innovation is happening every day and the regulatory world does not react well to that. They react legalistically. That’s the issue that’s going to face the new leadership of the Fed going forward. Weakening Dodd Frank or doing something more with Dodd Frank is beside the point when Silicon Valley is as powerful as it is.

Big banks’ are trying very hard to domesticate some of the new technologies, including investments in blockchain, although this is unlikely to be enough to catch up with the speed of change coming out of the more cash-flush, venture-capital driven tech world.

Banks will always say buy the technology and bring it into the regulated sector but are these slow moving, extremely conservative institutions really going to be able to innovate quickly or are they just big bureaucracies that are going to be way too slow to react to an overwhelming onslaught of innovation and cash. To compound their problem, consumers do not like banks and believe they have been screwed them for long enough.